The turmoils affecting the economics and financial markets in the United States and Europe do not seem to go away as fast as anyone would want to. Those who warned that this may be a crisis with a "W" shape may well be right.
I had a friend, we’ll call him George[i], who had a theory about how to best keep the carbonation in his beverages. It was very straightforward. It went like this: After opening, leave the cap off. Although it sounds ridiculous, this was his actual procedure. Don’t laugh. T
This week was of high political voltage because of the debt ceiling debate. Could the most important economy in the world default its debt? And in such case, what would happen, not only to the United States, but to the worldwide economy, given that we are in the midst of a financial crisis?
Fractional reserves is an important component of financial stability. Most of the financial regulation is aimed to control this aspect of banking practice such that banks do not become insolvent and a contagious set of bank runs gets into the financial markets.
Lately, a lot has been said about Greece, Spain and Italy in the financial crisis affecting Europe. The fear is that these economies can affect the performance of bigger economies, like Germany, one of the largest economies in the world and the second worldwide exporter.
Italy's senate approved today a plan to cut government spending for the period 2011-2014. Italy's public debt is more than 100% of GDP and the fiscal deficit was between 3% to 5.9% of GDP for last year.
The European countries seem to be facing a road with no easy exit. One on side they are facing fiscal deficits. On other side they are already dealing with an important debt amount that can hardly be sustained, as the case of Greece is showing these days.
Ordinarily, “newcomers entering the field cannot compete immediately wit the established, reputable companies, and have to spend years working… to earn an equal reputation[i].” People have an incentive not to poison their neighbors – they have to see them everyday! And businessmen have an incentive not to injure their customers – they would like to see them every day!
Deposit insurance, it is argued, is needed to cope with inherent fragility of banking and money market. To avoid panics, or financial crisis, a safety net on the system is required. Of course, such safety, is not free.
"Federal Reserve Bank of Kansas City President Thomas Hoenig, the central bank’s longest-serving policy maker, said the U.S. needs to raise interest rates to encourage individuals to save and avoid future asset bubbles.
"To begin, the national debt has provoked concern over the stability of US debt. Last month Standard and Poor’s revised its sovereign credit rating of the U.S. in the long-term from stable to negative. Last week the US reached its debt limit, which, justified or not, has perpetuated this anxiety.
Roberts and Papola have done it again: a rap video that explains the divergent views of two of the most prominent economists of the 20th century. It’s better than most textbooks, and entertaining to boot.
"In ordinary times it would be ignorant to ask, “Who’s going to bail out the Fed?” — but then again these aren’t ordinary times. Solvency of the Federal Reserve Bank shouldn’t be an issue because it carries the full faith and credit of the United States of America.